| Abstract |
This paper investigates how basic financial data available on-line affects behavior of investors with little or no knowledge of finance. It presents results of an experimental study in which undergraduate students were asked to invest in various stocks based on basic information about these stocks provided by Yahoo Finance website. We found that subjects, as a group, (1) invest more in stocks with extremely high or low short-term realized returns, (2) follow momentum strategy over short-run realized returns, and (3) follow contrarian strategy over long-run realized returns. We also found that (i) the same investor may simultaneously use momentum and contrarian strategies, (ii) investment strategies of a significant number of individual investors do not change over time, and (iii) short-term momentum investors are more likely to follow long-term contrarian strategies than investors who do not base their investment decisions on short-term realized stock returns. |